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Jim Rohr, the 62-year-old chairman of
PNC Financial Services,
pnc 0.17418568193694478%PNC Financial Services Group Inc.U.S.: NYSEUSD115.02
0.20.17418568193694478%
/Date(1481320852806-0600)/
Volume (Delayed 15m)
:
2560166AFTER HOURSUSD115.02
%
Volume (Delayed 15m)
:
5636
P/E Ratio
15.952843273231622Market Cap
55860161117.4005
Dividend Yield
1.9127108328986264% Rev. per Employee
299354More quote details and news »pncinYour ValueYour ChangeShort position
might be straining his eyes, but he believes he sees the U.S. economy—and the banking environment—slowly recovering. Now if he can just get the rest of the world to believe that, too.

"For the first time in 3½ years, loans have begun to grow in a number of sectors, though it's true we're coming off a lower base," says Rohr.

So far, investors are skeptical of the Pittsburgh bank, which has a reputation for being conservative. PNC shares (ticker: PNC) have stubbornly held around $61 this year, even though the company is likely to earn $5.61 a share this year, and $6.35 in 2012. Based on this year's estimate, PNC sports a price/earnings ratio of 11, compared with its historical median of 13. The stock trades at 1.1 times book, versus a historical median of 1.5. But the stock's stagnation looks like an opportunity for investors; one bull says the shares could rise 25% over the next 12 months.

Jim Rohr, chairman of PNC: "For the first time in 3½ years, loans have begun to grow in a number of sectors, though it's true we're coming off a lower base."
Karen Meyers for Barron's

One of the bank's attractions is its resilience. "We have the proven ability to grow in high- and low-growth markets, and the scale to compete successfully in a consolidating industry," Rohr says.

PNC Financial is the nation's sixth-largest bank, with $264 billion in assets, some of it gained in its 2008 takeover of Cleveland's then-reeling National City Bank.

LAST YEAR, ROUGHLY a third of PNC's revenue of $15 billion came from retail banking operations. Corporate and institutional units, focused mainly on mid-sized companies in the Midwest and the Middle Atlantic region, accounted for another third. The rest came from other businesses, including Harris Williams, a merger advisor that Rohr says had a "very good year" in 2010 and has a "strong pipeline" this year. PNC also has a 20% stake in BlackRock, the big investment firm, valued on its books at well below market price.

PNC does a lot of its banking the boring, old-fashioned way—simply relying on the spread between the interest rates on deposits and loans. Thus, it steered clear of some of the banking disasters of recent years, including the subprime-mortgage mess. It didn't need any TARP money, but it got $7.6 billion from Uncle Sam anyway, to help it take over troubled National City at the height of the financial crisis. That loan has been repaid.

CORY GILCHRIST, PORTFOLIO MANAGER of the Denver-based
Marsico 21st Century
fund (MXXIX), a buyer of PNC shares, says the bank should benefit from two trends. First, nonbank financial institutions will be required to hold on to more of the risky assets they originate. Second, Midwestern manufacturing will rebound further, as more production migrates back to the U.S. as a consequence of higher wages in China.

The Bottom Line

PNC, the sixth-largest U.S. bank, has shown resilience during tough times. A low P/E ratio and improving revenue help make its shares attractive.

In addition, PNC has a Tier 1 capital ratio—a key measure of a bank's financial strength—estimated at 9.8%, versus an average of 8.8% for the top 10 U.S. banks. And Chief Financial Officer Richard Johnson estimates its provision for bad loans, many from the National City deal, could slide by $800 million this year. At the same time, Rohr predicts, the bank could get almost $500 million annually in additional revenue from improved sales, particularly from National City's Western markets. PNC's retail-banking unit now covers almost one-third of the U.S. population. The bank also has wrung out $1.8 billion in combined costs since it bought National City.

Add it all up, and Anthony Polini, an analyst at Raymond James' New York office, sees the stock rising to $76 within a year.

Who says boring can't be beautiful?

Boring Is Beautiful

PNC is a large bank, but not one of the behemoths. That fact will serve it well as it tries to expand in an increasingly regulated banking sector.